McBride: Know the tax benefits of charitable giving

Many Canadians feel good about giving to charity as a holiday tradition. Furthermore, the government provides generous tax breaks to encourage us to donate to charity.

Tax benefits

The cost of your donation to a registered charity is greatly reduced by claiming tax credits on your income tax return. Always save your receipts whenever you make charitable donations.

The Charitable Donation Tax Credit (CDTC) is available in two stages. The first $200 of donations can save $52 of tax (using the combined federal-plus-provincial rate of 26 per cent for Saskatchewan). Donations above $200 save tax at the rate of 44 per cent for 2016, which means you can save $88 of tax on the next $200 worth of donations.

In total, $400 of charitable donations would save you $140 of income tax. In other words a $400 gift would cost you only $260.

Starting in 2016, to the extent your income exceeds $200,000 and you are subject to a 48 per cent tax rate, your tax credit for donations increases to 48 per cent.

First-Time Donor

We still have a First-Time Donor’s Super Credit (FDSC) to supplement the regular CDTC for donations in 2016. The FDSC effectively adds 25 per cent to the rates used in the calculation of the CDTC for up to $1,000 of monetary donations. As a result, a first-time donor gets a 51 per cent federal-plus-provincial credit for donations of $200 or less; and a 69 per cent tax credit for the portion of donations over $200 but not exceeding $1,000.

That means a first-time donor who donates $400 to charities can save $240 of income tax, rather than the usual $140 savings available to regular donors.

To be considered a first-time donor you (and your spouse) must not have claimed a donation credit after 2007.

Donating securities

For large value gifts, consider donating publicly traded securities in kind to charity — you’ll save more tax than writing a cheque for the same dollar value.

Review your non-registered investment account statements. Donating appreciated securities makes the capital gains tax-free. Donating securities that have dropped in value is a way to trigger capital losses to claim against other capital gains.

There was a generous proposal in the 2015 Budget to waive capital gains tax on certain donations to charity funded from the sale of real estate and private corporation shares starting in 2017. However, that measure has been cancelled.

Gifts at death

Starting in 2016, new tax rules apply to gifts made to charity upon death. An executor can only claim the charitable donation tax credit on a deceased person’s final T1 tax return if the gift is made within 60 months of death.

How can you ensure that your gift is made on time? Beneficiary payouts are generally speedy when you name your favourite charity as a direct beneficiary of your RRIF, TFSA or life insurance policy.

On the other hand, if you include a charitable bequest as a clause in your will, distribution delays can occur as the executor probates the will and liquidates property. The number of wills being challenged by next-of-kin who feel that charities have been left too much money has trebled in recent years.

To make it easier for your executor to pay a will bequest to charity quickly, state a specific dollar amount rather than a percentage of the estate value.

Another new rule requires the estate to qualify as a graduated rate estate (GRE). In particular, a beneficiary should be careful not to volunteer to loan cash to the estate even if the estate does lack cash.

Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional advisor on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.

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